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PitchBook just released its report on Middle Market M&A activity by Private Equity for the First Half of 2013 – it was a BIG surprise to many. Most market watchers were expecting a pickup in deal activity in Q2 after a drop off in Q1 from the spike in tax motivated transactions in late 2012. Investors were sitting on unprecedented amounts of dry powder that started expiring in 2013, large numbers of portfolio companies were still held after five+ years, easy access to debt at very low rates was available, all pointed to a pickup in deal activity. This did NOT happen – Q2 was the slowest since Q2 2009! Click here to see full report.

The US stock markets are at all time HIGH’s, unemployment is below 8%, interest rates are at historical lows and consumer confidence is at 57%, the highest since 2007. Even the housing market is coming back with new construction activity up for the first time since the great recession. This fragile recovery is being buoyed by the Fed’s policy of Quantitative Easing pumping $85 BN monthly into the US economy. Everyone knows the stimulus will come to an end and we have already seen the impact of Chairman Bernanke’s June 20th comment about the Fed “taking its foot off the accelerator” in late 2013 or the first half of 2014 if unemployment declines to 7% – the Dow lost over 550 points in two trading sessions. Last week he made another announcement that he will keep the pedal to the metal for as long as it takes – the markets are at NEW all time HIGH’s.

“Uncertainty” kills markets and consumer confidence (consumer spending drives our GDP) and the author feels this is the reason for this BIG surprise in deal activity slowing down. Volatility in the markets will be the norm going forward as long as clouds of uncertainty remain on the horizon. Our largest trading partner, Europe, is in recession, US 1st Half 2013 GDP forecasts have been revised down to below 1%, Geo-political Risk is spreading across the Middle East with Syria in a civil war and Egypt potentially headed in this direction, the first successful terrorist attack on US soil since 911 occurred in Boston, an exploding national debt with Washington unable to address the tough choices ahead, and more government regulations imposed on US businesses (the Affordable Health Care Act takes full effect in 2014) do not make for a high degree of confidence in strong GDP growth in the future.

The author does not know what will happen going forward but business owners considering a sale of part or all of their company in the next five years may want to act sooner than later. At least an owner should consider hedging their bet by taking some of their chips off the table today. In five years there will be less money available for acquisitions by financial buyers (fewer buyers), the number of “boomer” business owners selling will add potentially hundreds of thousands of new deals to the market when interest rates are rising, and inflation possibly once again is a concern. This is not what I would call a “Sellers Market”.

DISCLAIMER: Opinions and conclusions in this post are solely those of the author unless otherwise indicated. This article is for general information purposes and is not intended to be and should not be taken as advice on any particular matter nor is it intended to be a solicitation regarding any securities transaction and or investment relationship. For those desiring additional information please visit our website www.mamarketplace.com.